FINANCIALIZATION AND ITS IMPACT ON PROCESS OF DEINDUSTRIALIZATION IN THE EU

Abstract

The aim of this research is to examine whether and to what extent the process of fnancialization has an impact on the process of deindustrialization in the European Union, employing a fxed-effect panel regression model. In this paper exogenous explanatory variable that indicates the level of fnancialization is presented by the value added of the fnance sector as a percentage of total value added, and by the employment in the fnance sector as a percentage of total employment. In a process of deindustrialization, the industrial activity is usually replaced by service activities. However, situations where the service sector has not been able to absorb the additional supply of labour and to produce additional values that would compensate the reduction in the industrial sector, could have led to higher unemployment and lower economic growth. In this paper, deindustrialization is measured by the value added of industry sector as a percentage of total value added, and by the employment in industry as a percentage of total employment. Using latest panel data from EUROSTAT and ILO for the period from 1995 to 2015 author detects the signifcant and negative impacts of the process of fnancialization on value added of industry sector, as well as on the employment in the industry sector. This supports the conclusion that the process of deindustrialization of the EU countries can be characterized as a fnancializationled process.